As stock markets correct, buyback gains momentum

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Mumbai | Updated: February 26, 2016 10:45:10 AM

Dr Reddy’s Laboratories, Just Dial, and OnMobile Global have already announced their buyback plans, while Borosil Glass, Himalaya Granites and Technocraft Industries have successfully completed buyback so far in 2016.

shares buybackBuyback plan in markets: Dr Reddy’s Laboratories, Just Dial, and OnMobile Global have already announced their buyback plans, while Borosil Glass, Himalaya Granites and Technocraft Industries have successfully completed buyback so far in 2016. (Photo: Reuters)

Amid the ongoing correction in the equity markets, buyback activity among cash-surplus companies seems to be picking up.

Dr Reddy’s Laboratories, Just Dial, and OnMobile Global have already announced their buyback plans, while Borosil Glass, Himalaya Granites and Technocraft Industries have successfully completed buyback so far in 2016.

Buybacks have significantly increased during the last 11 months during which the benchmark lost close to 21%. Since April 2015, the Street has witnessed 12 buyback offers worth Rs 1,418 crore – a two-fold jump compared with Rs 605 crore of buyback offers in FY15, Prime data showed.

Bayer Cropscience was the biggest buyback during the period. The agrochemical company brought shares worth Rs 506 crore from investors in October 2015.

“Buybacks take center stage when there is downturn in equity markets as the cost of acquisition comes down. Further, a buyback also reinforces the confidence promoters have in their company,” said Prithivi Haldea, chairman of Prime Database. Buybacks are also beneficial to shareholders as acquisition of shares is made at a premium to the current price, Haldea added.

Dr Reddy’s Laboratories, the third-largest pharma company in terms of market capitalisation, has already informed stock exchanges that the company will buy back shares at a maximum price of Rs 3,500 per share – nearly 15% premium to Wednesday’s closing price of Rs 2,993.25 on the BSE. The maximum value of the buyback would be Rs 1,569.4 crore. The Hyderabad-based pharma company has Rs 3,965.6 crore of cash and equivalents on the books, as per Bloomberg.

The share re-purchase of Just Dial worth Rs 164.5 crore opened on Thursday. The e-commerce company will buy up to 10.61 lakh shares from investors at Rs 1,550 apiece,the company said in a regulatory filing. The buyback announcement has helped shares of Just Dial to recover from the sharp 50% decline they had witnessed in the first two weeks of February after its Q3FY16 numbers failed to meet Street expectation. Post the buyback announcement, shares have recovered 15%.

Telecom company OnMobile has also announced its plans to buyback shares worth Rs 70 crore shares from investors at Rs 150 apiece.

The government is also considering the buyback route for divestment of its stake in cash-rich PSUs — Bharat Heavy Electricals (BHEL) and National Aluminium Company (Nalco) — instead of opting for a open market offering, so that it can get higher prices from the stake sale, sources told FE.

The government plans to sell 10% of its stake in BHEL, while it is expected to divest 25% of its stake in Nalco. While Nalco has Rs 5,573 crore of cash and equivalents on its balance sheet at the end of FY15, BHEL has cash reserves worth Rs 9940.2 crore, Bloomberg data showed.

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